Row as firms pocket petrol tax cut

Oil companies face a row with the Government over their refusal to pass on to motorists tax cuts on environmentally friendly fuel.

In last year's Budget Gordon Brown cut duty on ultra-low sulphur petrol to create a 1p differential between this fuel and normal unleaded at the pumps from last October. The Chancellor's aim was to encourage drivers to use it.

However, amid a string of announcements of record profits by the firms, several of them confirmed that they are not passing on the cut, but using it to offset the higher costs of producing ULSP. They say their profits are high, but they do not make good returns on UK forecourts.

Among those failing to pass on the reduction are Shell, Esso and Texaco, which argue that without the change in duty the new fuel would be even dearer.

However, a Treasury spokesman indicated that the firms were wrong: 'The consumer would expect the duty to be passed on.'

Treasury minister Stephen Timms will reinforce the point this week at a hearing held by the House of Commons Trade and Industry Select Committee, arguing that the cut was intended to encourage motorists towards cleaner fuels.

Committee chairman Martin O'Neill said: 'This was promised and it has not happened. Motorists have not seen the benefit of this coming through. We will be raising it with the Ministers, and we will be writing to companies to seek an explanation.'

O'Neill has been a stern critic of the firms, which have now made huge profits in two quarters because of stronger oil prices.

Last week he said they should pass on the cut to try to win back support from a public that had seen them 'profiteering' even when the oil price fell.

However, companies said they would hand on a separate 2p cut announced in the Chancellor's pre-Budget statement last November.

Shell last week announced profits for last year of £13.1 billion, up by 85 per cent, and BP is expected to announce £13bn profits on Tuesday.